Labour rebels hold Budget to ransom

Frank Field leads a new revolt against abolition of 10p starting rate for income tax

Ministers are trying to head off another damaging back-bench Labour revolt today – this time over Gordon Brown's decision in 2007 to abolish the 10p starting rate of income tax. Alarm bells were ringing among Labour whips after 30 of the party's MPs backed a call for full compensation for the low-paid workers who lost out in Mr Brown's final Budget as chancellor in 2007.

They signed an amendment to the Finance Bill which implements this year's Budget. The rebels include Blairites Siobhain McDonagh and Sally Keeble and left-wingers Diane Abbott, Alan Simpson and John McDonnell.

If the amendment is passed, the Budget could not become law – and taxes could not be collected – until all those who lost money from the 10p tax fiasco had been compensated.

The Tories and Liberal Democrats will support the rebels, who would need 32 Labour MPs to vote against the Government to succeed. Defeat would embarrass the Prime Minister, whose authority has been weakened by Commons reversals over residence rights for Gurkha veterans and the Bill to clean up politics after the expenses scandal, and by climbdowns ahead of votes on the Iraq war inquiry and the partial sell-off of the Royal Mail. Frank Field, a former minister for Welfare Reform, and Greg Pope, a former Labour whip, are leading the rebellion.

Mr Field claimed that despite the Government's decision to raise tax allowances to help some of the nine million people who lost out when the 10p tax rate was abolished, 1.3 million people would still be worse off by 2012 and the Government had made "no move" to help them directly.

Mr Brown scrapped the 10p rate to help finance a cut in the basic rate of tax from 22p to 20p in the pound.

Mr Field said: "The Budget debate gives MPs the last chance they will have this side of the general election to deliver justice for the lowest paid workers ... "

Downing Street said the Government had already helped affected workers. The rebels say more than one million people are £1 worse off each week. Treasury ministers say the tax system is too complicated to compensate them all individually.

Brown's 10p tax: Cost of climbdowns

*March 2007

Gordon Brown announces the abolition of the 10p income tax rate in his final Budget as chancellor.

*April 2008

Scrapping of 10p rate takes effect.

*May 2008

Alistair Darling announces £2.7bn compensation package for affected workers, raising the personal threshold for basic-rate taxpayers by £600, making them £120 better off.

*November 2008

Darling announces that the compensation will be made permanent, at a cost of £270m in the 2009-10 financial year.